Financial multiple choice

Which of the following is the term commonly used to describe the practice of reporting the net realizable value of receivables in the financial statements.

Allowance method

What is the term used to describe the amount of accounts receivable that is actually expected to be collected?

Net realizable value

Which of the following is a true statement about a company that uses the allowance method?

Teh net realizable value of its accounts receivable is shown on the balance sheet

Which of the following is a cost of extending credit to customers?

Uncollectable accounts expense

when is it acceptable to use the direct write-off method

If the dollar amount of uncollectible accounts is not material.

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2, respectively?

$720 in Year 1 and $240 in Year 2

Which of the following is not an advantage of accepting credit cards from retail customers?

There are fees charged for the privilege of accepting credit cards.

What does the accounts receivable turnover ratio measure?

How quickly accounts receivable turn into cash

How is the accounts receivable turnover ratio computed?

Sales ÷ Net accounts receivable

How is the average number of days to collect accounts receivable computed?

365 ÷ Accounts receivable turnover ratio

Which of the following would be classified as a tangible asset?

Which of the following would not be classified as a tangible long-term asset

copyright

Which of the following terms is used to describe the process of expense recognition for property, plant and equipment?

depreciation

Which of the following terms is used to describe long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

intangible assets

Goodwill may be recorded in which of the following circumstances?

When one business acquires another business

What term is used to describe the situation where the value of an intangible asset may be significantly diminished?

Impairment

Which of the following terms is used to identify the expense recognition associated with intangible assets?

Amortization

Which financial statement reports the amount of accumulated depreciation?

Balance sheet

How is depreciation expense reported in the financial statements?

Operating expenses section of the income statement

Where are gains and losses reported?

As nonoperating items on the income statement

Receivables are normally reported on the balance sheet at net realizable value. In contrast, payables are carried at face value. Which accounting principle requires this treatment of payables?

Going concern assumption

On September 1, Year 1, West Company borrowed $10,000 from Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. West Company has a calendar year-end. What is the amount of interest expense that will be reported on West's income statement for Year 1?

$200

Madison Company issued an interest-bearing note payable with a face value of $24,000 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term.

Based on this information alone, what is the amount of total liabilities appearing on Madison's balance sheet as of December 31, Year 1?

$24,800

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Which of the following represents the correct journal entry to record a taxable cash sale of $400 if the sales tax rate is 5%?

A debit to cash for $420, a credit to sales tax payable for $20, and a credit to sales revenue for $400.

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

The outcome is probable and the amount can be reasonably estimated.

Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's burgers. Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. What should Burger Barn do as a result of the information that is available?

Ignore the lawsuit in its financial statements

Which of the following items would most likely not be classified as a current asset?

Office equipment

On a classified balance sheet, the financial statement user will be able to distinguish between:

current and noncurrent assets.

A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000. What is the company's current ratio?

1.44 to 1

he following information is taken from the balance sheet of Atlanta Company:

Current assets	$ 960	Current liabilities	$ 600
Property, Plant & Equipment	1,450	Noncurrent liabilities	770
Total assets	$ 2,410	Total liabilities	$ 1,370

1.6 to 1

What is the current ratio used to evaluate?

Liquidity

How is the current ratio calculated?

Current assets divided by current liabilities

How is the current ratio calculated?

Current assets divided by current liabilities

Which of the following terms describes the ability to generate short-term cash flows?

Liquidity

On November 1, Year 1, Covina Company borrowed $8,000 cash from Shelton Company. Covina issued a one-year note that carried a 7% annual rate of interest. Which of the following journal entries would be necessary to record the issue of the note on November 1, Year 1?

Account Title	Debit	Credit
Cash	8,000
Notes Payable		8,000

A company borrowed $9,600 from the State Bank on April 1, Year 1. The one-year note carried a 5% rate of interest. Which of the following journal entries would be required to recognize accrued interest on December 31, Year 1?

Account Title	Debit	Credit
Interest Expense	360
Interest Payable		360

Correct

A company sold merchandise for $4,000 cash. Assume the event is subject to a state sales tax of 8%. Which of the following journal entries would be required to record the sales event? (Ignore any effects associated with the recognition of cost of goods sold.)

Account Title	Debit	Credit
Cash	4,320
Sales Tax Payable		320
Sales Revenue		4,000

Correct

A company paid $320 cash to settle its sales tax liability. Which of the following journal entries would be required to record the cash payment?

Account Title	Debit	Credit
Sales Tax Payable	320
Cash

Standard Company has a contingent liability that has a likelihood of actual occurrence that is classified reasonably possible. Also, the amount of the liability cannot be reasonably estimated. Under these circumstances, Standard is required to

disclose but not recognize the liability or the expense.

According to GAAP a contingent liability classified as remote

need not be disclosed or recognized.

A company had sales of $210,000 in Year 1. The company warrants its products and estimates warranty expense to be 4% of sales. Which of the following journal entries would be required to recognize the year-end warranty obligation?

• 
  

  Account Title	Debit	Credit
  Warranty Expense	$ 8,400
  Warranty Payable		$ 8,400

  Correct

A company had sales of $420,000 in Year 1. The company warrants its products and estimates warranty expense to be 3% of sales. In Year 2, the company paid $10,000 cash to settle warranty obligations. Which of the following journal entries would be required to recognize the settlement of the warranty obligations?

Account Title	Debit	Credit
Warranty Payable	$ 10,000
Cash

Which of the following would not likely appear in the current liabilities section of a classified balance sheet

Long-term notes payable

A classified balance sheet displays

assets and liabilities in current versus noncurrent categories.

A company reported $2,000 of current assets, $4,000 of long-term assets, $1,400 of current liabilities and $3,600 of long-term liabilities on its Year 1 balance sheet. Based on this information, the current ratio is

1.43.